<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

                                       OR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                 For the transition period from        to 
                                                ------    ------
                         Commission File Number: 0-28480

                                EDIFY CORPORATION
             (Exact name of registrant as specified in its charter)

           DELAWARE                                        77-0250992
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                       Identification Number)



                            2840 SAN TOMAS EXPRESSWAY
                          SANTA CLARA, CALIFORNIA 95051
                    (Address of principal executive offices)


                                 (408) 982-2000
              (Registrant's telephone number, including area code)


Indicate by checkmark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                    (1)          Yes      X       No
                                        -----         -----



              As of September 30, 1996, there were 16,075,710 shares of the
Registrant's common stock outstanding.
<PAGE>   2
--------------------------------------------------------------------------------
EDIFY CORPORATION
FORM 10-Q
INDEX
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                            PAGE
PART I     FINANCIAL INFORMATION                                                           NUMBER
<S>                                                                                         <C>

ITEM 1:    Financial Statements

           Condensed Balance Sheets as of September 30, 1996 and
               December 31, 1995........................................................      3

           Condensed Statements of Operations for the three and nine
               months ended September 30, 1996 and 1995.................................      4

           Condensed Statements of Cash Flows for the nine months
               ended September 30, 1996 and 1995........................................      5

           Notes to Condensed Financial Statements......................................      6

ITEM 2:    Management's Discussion and Analysis of Financial Condition
               and Results of Operations................................................      8

PART II    OTHER INFORMATION

ITEM 1:    Legal Proceedings............................................................     16

ITEM 2:    Changes in Securities........................................................     16

ITEM 3:    Defaults Upon Senior Securities..............................................     16

ITEM 4:    Submission of Matters to a Vote of Security Holders .........................     16

ITEM 5:    Other Information............................................................     16

ITEM 6:    Exhibits and Reports on Form 8-K.............................................     16

           Signatures...................................................................     17
</TABLE>


                                      - 2 -
<PAGE>   3
--------------------------------------------------------------------------------
PART I:  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                                EDIFY CORPORATION

                            CONDENSED BALANCE SHEETS
                            (IN THOUSANDS: UNAUDITED)
<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  1996            1995
                                                              -------------   ------------
<S>                                                             <C>             <C>     
                              ASSETS
Current assets:
    Cash, cash equivalents and short-term investments ...       $ 43,775        $  7,154
    Accounts receivable, net ............................          7,789           6,000
    Prepaid expenses and other current assets ...........            880             281
                                                                --------        --------
       Total current assets .............................         52,444          13,435
Property and equipment, net .............................          4,698           1,822
Other assets ............................................            259             115
                                                                --------        --------
       Total assets .....................................       $ 57,401        $ 15,372
                                                                ========        ========


               LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable ....................................       $  1,209        $    802
    Current installments of capital lease obligations ...            397             309
    Accrued expenses ....................................          3,511           1,871
    Unearned revenue ....................................          2,802           1,461
                                                                --------        --------
         Total current liabilities ......................          7,919           4,443
                                                                --------        --------
Capital lease obligations, excluding current installments            716             510
Commitments and contingencies
Stockholders' equity:
    Preferred stock .....................................           --            24,121
    Common stock ........................................             16             693
    Additional paid-in capital ..........................         64,120            --
    Deferred compensation and other .....................           (519)           (558)
    Accumulated deficit .................................        (14,851)        (13,837)
                                                                --------        --------
         Total stockholders' equity .....................         48,766          10,419
                                                                --------        --------

         Total liabilities and stockholders' equity .....       $ 57,401        $ 15,372
                                                                ========        ========
</TABLE>

                  See notes to condensed financial statements.

                                      - 3 -
<PAGE>   4
                                EDIFY CORPORATION

                       CONDENSED STATEMENTS OF OPERATIONS
                (IN THOUSANDS, EXCEPT PER SHARE DATA: UNAUDITED)

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED                   Nine Months Ended
                                                         SEPTEMBER 30,                        September 30,
                                                 ------------------------------       -----------------------------
                                                     1996              1995              1996              1995
                                                 ------------        ----------       -----------       -----------
<S>                                                <C>               <C>               <C>               <C>     
Net revenues:
   License ...............................         $  5,356          $  2,890          $ 13,532          $  7,272
   Services and other ....................            3,705             1,641             8,259             3,358
                                                   --------          --------          --------          --------
     Total net revenues ..................            9,061             4,531            21,791            10,630
   Cost of license revenues ..............              138               135               338               378
   Cost of services and other revenues ...            3,026             1,045             6,968             2,487
                                                   --------          --------          --------          --------
     Gross profit ........................            5,897             3,351            14,485             7,765
                                                   --------          --------          --------          --------
Operating expenses:
   Product development ...................            1,527               616             3,997             1,871
   Sales and marketing ...................            4,022             2,049            10,450             5,461
   General and administrative ............              845               421             1,980               846
                                                   --------          --------          --------          --------
     Total operating expenses ............            6,394             3,086            16,427             8,178
                                                   --------          --------          --------          --------
     Income (loss) from operations .......             (497)              265            (1,942)             (413)
Interest income (expense), net ...........              534                (4)              936                16
                                                   --------          --------          --------          --------
     Income (loss) before income taxes ...               37               261            (1,006)             (397)
Provision for income taxes ...............             --                --                   8                17
                                                   --------          --------          --------          --------
     Net income (loss) ...................         $     37          $    261          $ (1,014)         $   (414)
                                                   ========          ========          ========          ========
Net income (loss) per share ..............         $   0.00          $   0.02          $  (0.07)         $  (0.03)
                                                   ========          ========          ========          ========
Shares used in computing net income (loss)
    per share ............................           18,000            13,654            14,921            13,133
                                                   ========          ========          ========          ========
</TABLE>



See notes to condensed financial statements.

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<PAGE>   5
                                EDIFY CORPORATION

                       CONDENSED STATEMENTS OF CASH FLOWS
                            (IN THOUSANDS: UNAUDITED)
<TABLE>
<CAPTION>
                                                                              NINE MONTHS ENDED SEPTEMBER 30,
                                                                              -------------------------------
                                                                                  1996               1995
                                                                              -----------        ------------
<S>                                                                             <C>               <C>     
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss ..........................................................         $ (1,014)         $  (414)
    Adjustments to reconcile net loss to net cash provided by (used in)
       operating activities:
      Depreciation and amortization ...................................            1,040              638
      Provision for returns and doubtful accounts .....................              888               87
      Amortization of deferred compensation ...........................              349             --
      Changes in operating assets and liabilities:
        Accounts receivable ...........................................           (2,677)          (2,130)
        Prepaid expenses and other current assets .....................             (599)             (31)
        Accounts payable ..............................................              407              114
        Accrued expenses ..............................................            1,640              712
        Unearned revenue ..............................................            1,341             (170)
                                                                                --------          -------
           Net cash provided by (used in) operating activities ........            1,375           (1,194)
                                                                                --------          -------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of property and equipment, net ..........................           (3,331)            (726)
    Purchases of short-term investments ...............................          (19,418)            --
    Sales and maturities of short-term investments ....................           15,913              500
    Other assets ......................................................             (144)             (67)
                                                                                --------          -------
           Net cash used in investing activities ......................           (6,980)            (293)
                                                                                --------          -------

CASH FLOWS FROM FINANCING ACTIVITIES
    Principal payments under capital lease obligations ................             (291)            (215)
    Proceeds from line of credit ......................................             --                300
    Net proceeds from issuance of common stock ........................           39,019               60
                                                                                --------          -------
           Net cash provided by financing activities ..................           38,728              145
                                                                                --------          -------
Increase (decrease) in cash and cash equivalents ......................           33,123           (1,342)
Cash and cash equivalents at beginning of period ......................            1,182            2,087
                                                                                --------          -------
Cash and cash equivalents at end of period ............................         $ 34,305          $   745
                                                                                ========          =======
</TABLE>



See notes to condensed financial statements.


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<PAGE>   6
                                EDIFY CORPORATION

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


(1)      BASIS OF PRESENTATION

         The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles and, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) considered necessary to fairly state the Company's
financial position, results of operations, and cash flows for the periods
presented. These financial statements should be read in conjunction with the
Company's audited financial statements included in the Company's Final
Prospectus dated May 2, 1996 filed as part of a Registration Statement on Form
S-1 (Reg. No. 333-02020). The results of operations for the three and nine month
periods ended September 30, 1996 are not necessarily indicative of the results
to be expected for any subsequent quarter or for the entire fiscal year ending
December 31, 1996. The December 31, 1995 balance sheet was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles.

(2)      INITIAL PUBLIC OFFERING

         In May 1996, the Company completed its initial public offering and
issued 2,875,000 shares of its common stock to the public at a price of $15.00
per share. The Company received approximately $39.0 million of cash, net of
underwriting discounts, commissions and other offering costs. Upon the closing
of the initial public offering, all outstanding shares of its preferred stock
were automatically converted into shares of common stock.

(3)      NET INCOME (LOSS) PER SHARE

         Net income (loss) per share is computed based on the weighted average
number of shares of common stock outstanding and common equivalent shares from
stock options (under the treasury stock method, if dilutive) and preferred stock
outstanding (on an "as if converted" basis, even if antidilutive). In accordance
with certain SEC Staff Accounting Bulletins, such computations include all
common and common equivalent shares (using the treasury stock method) issued
within 12 months of the offering date as if they were outstanding for all
periods prior to the initial public offering using the initial public offering
price.


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<PAGE>   7
(4)      INVESTMENTS

         Under the provisions of SFAS No. 115, debt and equity securities
classified as available-for-sale securities for which cost approximated market
value as of September 30, 1996 and December 31, 1995, with maturities generally
within one year, consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                              September 30,     December 31,
                                                  1996             1995
                                              -------------     ------------
<S>                                              <C>              <C> 
Government agency securities ..............      $ 9,781          $ --
Commercial paper ..........................       11,144           3,951
Corporate bonds ...........................         --             1,019
Certificates of deposit ...................         --             1,007
Bankers' acceptances ......................         --               993
                                                 -------          ------
                                                 $20,925          $6,970
                                                 =======          ======
</TABLE>


Gains and losses from sales of available-for-sale securities were not
significant for the three or nine month periods ended September 30, 1996 and
1995.



                                      - 7 -
<PAGE>   8
--------------------------------------------------------------------------------
ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------


         This Form 10-Q contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those indicated by the forward-looking statements herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
set forth below in "Factors That May Affect Future Operating Results" as well as
those discussed in the "Risk Factors" section included in the Company's Final
Prospectus dated May 2, 1996 filed as part of a Registration Statement on Form
S-1 (Reg. No. 333-02020).

RESULTS OF OPERATIONS

NET REVENUES

         Total net revenues were $9.1 million for the quarter ended September
30, 1996 as compared to $4.5 million for the same 1995 quarter, representing an
increase of 100.0%. Total net revenues were $21.8 million for the nine months
ended September 30, 1996, an increase of 105.0% as compared to $10.6 million for
the same period a year ago. The Company's revenues are principally derived from
software licenses and fees for services, which are generally charged separately.
Revenues are recorded net of reserves for potential credit losses, which losses
to date have not been significant. In 1996 and 1995, 6% or less of the Company's
total net revenues were derived from international sales. Over time, the Company
intends to expand its operations outside of the United States and enter
additional international markets. International operations entail a number of
risks including those associated with product customization and regulatory
compliance and there can be no assurance that such expansion will be successful.

         LICENSE REVENUES. License revenues were $5.4 million for the quarter
ended September 30, 1996 as compared to $2.9 million for the comparable 1995
quarter. License revenues for the nine-month period ended September 30, 1996
were $13.5 million as compared to $7.3 million for the comparable period in
1995. The increases in license revenues were attributable to an increase in unit
volume as a result of the market's growing awareness and acceptance of
Electronic Workforce, the addition of Web/Intranet capabilities to this product
in the fourth quarter of 1995 and expansion of the Company's field sales force
and indirect distribution channels. The prices of the Company's licenses have
remained relatively constant during the comparable periods of 1995 and 1996. The
Company does not believe that the historical growth rates of license revenues
will be sustainable or are indicative of future results. The Company operates
with little backlog because its products are generally shipped as orders are
received. As is typical of the Company's business, the Company recognized a
substantial portion of its license revenues from transactions booked and shipped
near the end of the quarter ended September 30, 1996. Any downturn in any
potential customer's business, or any loss or delay of individual orders in the
future would


                                      - 8 -
<PAGE>   9

have a significant adverse impact on the Company's future business and operating
results. See "Factors That May Affect Future Operating Results."

         SERVICES AND OTHER REVENUES. Services and other revenues consist
primarily of fees from consulting, post-contract customer support and, to a
lesser extent, training and installation services. Services and other revenues
were $3.7 million for the quarter ended September 30, 1996 as compared to $1.6
million for the comparable 1995 quarter. Service and other revenues for the nine
months ended September 30, 1996 were $8.3 million as compared to $3.4 million
for the comparable period of 1995. Services and other revenues increased as a
percentage of total net revenues to 40.9% for the quarter ended September 30,
1996, from 36.2% for the quarter ended September 30, 1995, and increased to
37.9% for the nine months ended September 30, 1996 from 31.6% for the comparable
1995 period. These increases in services and other revenues occurred primarily
due to increased demand for consulting services, as well as increases in
post-contract customer support, training and installation services associated
with the increased volume of licenses of the Company's software. In addition,
services and other revenues as a percentage of total net revenues can fluctuate
from quarter to quarter due to timing and length of consulting projects.
Consulting services can be contracted for under fixed fee or time and material
arrangements. The Company's mix of time and materials contracts has increased in
1996 and is expected to continue to increase as the Company moves away from
contracting for fixed fee consulting arrangements. The Company does not expect
historical growth rates of its services revenues to be sustainable in the
future. To the extent services and other revenues is a higher percentage of
total net revenues, overall gross profit margins may be adversely impacted. Any
significant decline in the demand for the Company's consulting  services would 
have a material adverse impact on the Company's revenues and results of 
operations.

COST OF REVENUES

         COST OF LICENSE REVENUES. Cost of license revenues consists primarily
of the cost of product media, product duplication, documentation, and royalties
paid to third parties under technology licenses. Cost of license revenues was
$138,000 and $135,000 for the quarters ended September 30, 1996 and September
30, 1995, representing 2.6% and 4.7% of the related license revenues for the
respective quarters. Cost of license revenues was $338,000 for the nine months
ended September 30, 1996 as compared to $378,000 for the comparable 1995 period,
representing 2.5% and 5.2% of the related license revenues for the respective
periods. The decrease in cost of license revenues as a percentage of license
revenues from 1995 to 1996 was due to increased license revenues coupled with
decreased material and overhead costs. If the Company were required to obtain
licenses from third parties under patent or other intellectual property rights,
the cost of license revenues could increase significantly. See "Factors That May
Affect Future Operating Results."

         COST OF SERVICES AND OTHER REVENUES. Cost of services and other
revenues consists primarily of personnel-related costs and fees for third-party
consultants incurred in providing consulting, post-contract customer support,
training and installation services to customers. Cost of services and other
revenues was $3.0 million and $1.0 million for the quarters ended September 30,
1996 and September 30, 1995, representing 81.7% and 63.7% of the related



                                      - 9 -
<PAGE>   10
services and other revenues for the respective quarters. Cost of services and
other revenues was $7.0 million for the nine months ended September 30, 1996 as
compared to $2.5 million for the comparable 1995 period, representing 84.4% and
74.1% of the related services and other revenues for the respective periods.
These increases in absolute dollars for the comparable quarterly and nine-month
periods were due primarily to increases in personnel-related costs as the
Company continued to expand its consulting, customer support, training and
installation services organizations. The cost of services and other revenues as
a percentage may vary between periods due to the mix of services provided by the
Company and to varying levels of expenditures to build the services
organizations. Any significant decline in the demand for the Company's
consulting services would have a material adverse impact on the Company's
revenues and, as a result of the under-utilization of consulting personnel, on
the Company's gross profit and results of operations.

PRODUCT DEVELOPMENT

         Product development expenses were $1.5 million and $616,000, or 16.9%
and 13.6% of total net revenues, for the quarters ended September 30, 1996 and
September 30, 1995, respectively. Product development expenses were $4.0 million
and $1.9 million, or 18.3% and 17.6%, for the nine-month periods ended September
30, 1996 and 1995, respectively. Product development expenses consist primarily
of salaries and other related expenses for research and development personnel,
as well as the cost of facilities and depreciation of capital equipment. The
increases in absolute dollars and as a percentage of total net revenues for the
comparable quarterly and nine-month periods were attributable primarily to
increased staffing related to development of application products, ongoing
enhancements to Electronic Workforce, and the development of a version of
Electronic Workforce to run on Windows NT. The Company believes that significant
investments in product development are required to remain competitive. As a
consequence, the Company expects that product development expenses will increase
in absolute dollars in the future and will not decline significantly as a
percentage of total net revenues from their current levels. The failure to
develop and introduce a Windows NT version of Electronic Workforce on a timely
basis would have a material adverse affect on the Company's business and results
of operations. See "Factors That May Affect Future Operating Results."

         In accordance with Statement of Financial Accounting Standards No. 86,
the Company capitalizes eligible computer software development costs upon the
achievement of technological feasibility, subject to net realizable value
considerations. The Company has defined technological feasibility as completion
of a working model. To date, such capitalizable costs have not been material.
Accordingly, the Company has charged all such costs to product development
expenses in the accompanying statements of operations.


                                     - 10 -
<PAGE>   11
SALES AND MARKETING

         Sales and marketing expenses were $4.0 million and $2.0 million, or
44.4% and 45.2% of total net revenues, for the quarters ended September 30, 1996
and September 30, 1995, respectively. Sales and marketing expenses were $10.5
million and $5.5 million, or 48.0% and 51.4%, for the nine-month periods ended
September 30, 1996 and 1995, respectively. Sales and marketing expenses consist
primarily of salaries and commissions earned by sales and marketing personnel
and promotional expenses. The increases in absolute dollars for the comparable
quarterly and nine-month periods were due primarily to the expansion of the
Company's field and indirect sales operations and increased marketing
activities. The reductions in sales and marketing expenses as a percentage of
total net revenues were due primarily to the growth in total net revenues. The
Company expects to continue to expand its field sales and marketing efforts, its
third party value added reseller ("VAR") distribution channel and its operations
outside the United States and, therefore, anticipates that sales and marketing
expenditures will increase in absolute dollars in the future. There can be no
assurance that the Company's VARs will be able to successfully sell and support
the Company's products at the level required to expand the market for the
Company's products. See "Factors That May Affect Future Operating Results."

GENERAL AND ADMINISTRATIVE

         General and administrative expenses were $845,000 and $421,000, or 9.3%
and 9.3% of total net revenues, for the quarters ended September 30, 1996 and
September 30, 1995, respectively. General and administrative expenses were $2.0
million and $846,000, or 9.1% and 8.0%, for the nine months ended September 30,
1996 and 1995, respectively. General and administrative expenses consist
primarily of salaries and other related expenses of administrative, executive
and financial personnel and outside professional fees. The increase in absolute
dollars for the comparable quarterly periods and the increases in both absolute
dollars and as a percentage of total net revenues for the comparable nine-month
periods were attributable primarily to the addition of staff, increased costs
associated with expansion of information systems to support the growth of the
Company's business and increased costs to take on the additional
responsibilities associated with being a public company. The Company expects to
continue to expand its staffing, information systems and other items related to
infrastructure and, therefore, anticipates that general and administrative
expenditures will increase in absolute dollars in the future.

INTEREST INCOME (EXPENSE), NET

         Interest income (expense), net was $534,000 and ($4,000) for the
quarters ended September 30, 1996 and September 30, 1995, respectively. Interest
income, net for the nine months ended September 30, 1996 and 1995 was $936,000
and $16,000, respectively. These increases for the quarterly and nine-month
periods were due primarily to increases in average investment balances as a
result of investment of the proceeds from the Company's initial public offering.


                                     - 11 -
<PAGE>   12
PROVISION FOR INCOME TAXES

         The provisions for income taxes relate primarily to state income and
foreign withholding taxes.

LIQUIDITY AND CAPITAL RESOURCES

         From inception through April 1996, the Company financed its operations
and met its capital resource requirements primarily through the private sales of
Preferred Stock, totaling $24.1 million, and capital equipment leases. On May 2,
1996, the Company completed its initial public offering of 2,875,000 shares of
its common stock at a price of $15.00 per share. Proceeds to the Company from
this offering were approximately $39.0 million, net of underwriting discounts,
commissions, and other offering costs. At September 30, 1996, the Company's
cash, cash equivalents, and short-term investments (short-term interest-bearing,
investment-grade securities) totaled $43.8 million.

         At September 30, 1996, the Company had available a $2.0 million
revolving bank line of credit agreement that is secured by the assets of the
Company and expires in May 1997. Under terms of the agreement, advances under
the line are limited to 80% of eligible accounts receivable and borrowings
accrue interest at the bank's prime rate plus 0.5%. The line of credit contains
provisions that prohibit the payment of cash dividends without the bank's
consent and requires the maintenance of specified levels of tangible net worth
and certain financial ratios. There were no borrowings outstanding under the
line at September 30, 1996.

         For the nine months ended September 30, 1996, operating activities
provided cash of $1.4 million. Investing activities used cash of $7.0 million,
primarily for the purchase of $3.3 million in property and equipment and the net
purchase of $3.5 million in short-term investments. The Company expects that its
capital expenditures will increase as the Company's employee base grows. Net
cash generated from financing activities of $38.7 million was related primarily
to proceeds from the Company's initial public offering.

         At September 30, 1996, the Company's working capital was $44.5 million.
The Company has no significant capital spending or purchase commitments other
than normal purchase commitments and commitments under facilities and capital
leases. The Company believes that its working capital, together with its bank
line of credit and anticipated cash flows from operations will be sufficient to
meet its working capital and capital expenditure requirements for at least the
next twelve months.


FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

         Except for the historical information contained in this 10-Q, the
matters discussed herein are forward looking statements. These forward looking
statements concern matters which include, but are not limited to, the
sustainability of historical revenue growth rates, the Company's international
operations, expected mix of revenues, expected gross margins on services and 
other 


                                     - 12 -
<PAGE>   13
revenues, certain expected operating expense levels and the Company's liquidity
and capital needs. These matters involve risks and uncertainties that could
cause actual results to differ materially from those in the forward looking
statements. The revenue levels, results of operations and growth rates achieved
during the quarter and nine months ended September 30, 1996 are not necessarily
indicative of the results that may be achieved in any future period. There can
be no assurance that the Company will achieve profitability or experience growth
in revenues in the current quarter or any future quarter. The Company's
revenues, margins and operating results have fluctuated in the past, and are
expected to continue to fluctuate in the future, on an annual and quarterly
basis as a result of a number of factors, such as demand for the Company's
products, including new products and product enhancements, the mix of products
and services sold, the mix of distribution channels through which the Company's
products are sold, customer order deferrals in anticipation of new products,
purchasing patterns of value added resellers and customers, Company decisions
regarding hiring and other expenses and competitive conditions in the industry.
In particular, the Company plans to increase its operating expenses to expand
its sales and marketing operations, expand its distribution channels, fund
greater levels of research and development, broaden its customer support
capabilities and increase its administrative infrastructure. A relatively high
percentage of the Company's expenses is fixed in the short term as the Company's
expense levels are based, in part, on its expectations as to future revenues. If
revenues fall below expectations, expenditure levels could be disproportionately
high as a percentage of total net revenues, and operating results would be
immediately and adversely affected.

         The Company historically has operated with little backlog because its
products are generally shipped as orders are received. As a result, license
revenues in any quarter depend on the volume and timing of, and the Company's
ability to fill, orders received in that quarter. Individual orders for the
Company's products typically are for relatively large dollar amounts. The
Company also believes the purchase of its products is relatively discretionary
and generally involves a significant commitment of capital resources. Therefore,
any downturn in any potential customer's business, or any loss or delay of
individual orders for any reason, would have a significant impact on the
Company's revenues and quarterly results. In addition, because the Company
typically recognizes a substantial portion of its total revenue from
transactions booked and shipped in the last weeks, or even days, of the quarter,
the magnitude of quarterly fluctuations may not become evident until very late
in a particular quarter. Revenues are difficult to forecast because the market
for the Company's products is rapidly evolving.

         Based upon all of the foregoing, the Company believes that its
quarterly revenues, expenses and operating results could vary significantly in
the future and that period-to-period comparisons should not be relied upon as
indications of future performance. There can be no assurance that the Company
will be able to grow in future periods or that it will be able to sustain its
level of total net revenues or its rate of revenue growth on a quarterly or
annual basis. It is likely that, in some future quarters, the Company's
operating results will be below the expectations of stock market analysts and
investors. In such event, the price of the Company's common stock could be
materially adversely affected.



                                     - 13 -
<PAGE>   14
         The Company's future success will depend on its ability to design,
develop, test, sell and support new software products and enhancements of
current products on a timely basis in response to changing customer needs,
competition, technological developments and emerging industry standards. The
current version of the Company's Electronic Workforce product runs on IBM
Corporation's OS/2 operating system. The Company believes that some potential
customers will not license the Company's product unless and until it runs on an
alternative operating system. Accordingly, the Company is devoting significant
engineering and research and development resources to design and develop a
version of Electronic Workforce to run on the Microsoft Windows NT operating
system. It is possible that the Company's intention to develop a Windows
NT-based version of Electronic Workforce will cause potential customers to defer
or forgo purchases of current or future versions of Electronic Workforce, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's future success, particularly
in Web and Intranet applications, will depend upon the timely and successful
completion of this development and the ability of the Company to provide a
Windows NT-based version of Electronic Workforce with an adequate level of
performance and functionality. There can be no assurance that the Company will
be successful in developing, on a timely basis or at all, a fully functional
Windows NT-based version of its product or that such version, if developed, will
achieve customer acceptance. Failure by the Company to develop a Windows
NT-based version of Electronic Workforce successfully and in a timely manner
would have a material adverse effect on the Company's business, financial
condition and results of operations.

         In March and April of 1996, the Company received letters from
Syntellect Technology Corporation ("Syntellect") and Lucent Technologies
("Lucent") inviting the Company to negotiate a license of such parties' patents.
In October 1996, Lucent renewed its invitation and offered to license certain
Lucent patents to the Company for a substantial lump sum payment. Based on its
investigation of the patents referenced in such letters, the Company believes
that it does not violate any valid claims of the Syntellect or Lucent patents.
Nevertheless, there can be no assurance that the Company will not be found to
infringe any of the identified patents. If the Company is required to seek
licenses on any of these patents, there can be no assurance that the costs
associated with such licenses, if available, would not have a material adverse
effect on the Company's business, financial condition or results of operations.
In the event that the Company cannot come to an agreement with the above
parties, the Company may be drawn into litigation with such parties. There can
be no assurance that the costs associated with such litigation would not have a
material adverse effect on the Company's business, financial condition or
results of operations. In the future, the Company may receive additional
communications from these or other parties asserting that the Company's
products, trademarks or other proprietary rights require a license of
intellectual property rights or infringe, or may infringe, on their property
rights. As the number of software products in the industry increases, and the
functionality of these products further overlaps, the Company believes that
software developers may become increasingly subject to infringement claims. Any
such claims, with or without merit, could be time consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, or at all,



                                     - 14 -
<PAGE>   15
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

         An integral part of the Company's strategy is to develop multiple
distribution channels, including a field sales force, VARs and original
equipment manufacturers. The Company intends to increase its reliance on
third-party distribution partners in the future. The Company is expending and
intends to continue to expend significant resources to develop the VAR channel.
VARs are not, however, subject to any minimum purchase or resale requirements
and can cease marketing the Company's products at any time. Certain VARs also
offer competing products that they produce or that are produced by third
parties. There can be no assurance that the Company's existing VARs will
continue to provide the level of services and technical support necessary to
provide a complete self-service solution to the Company's customers or that they
will not emphasize their own or third-party products to the detriment of the
Company's products. The loss of VARs, the failure of such parties to perform
under agreements with the Company or the inability of the Company to attract and
retain new VARs with the technical, industry and application expertise required
to market the Company's products successfully in the future could have a
material adverse effect on the Company's business, financial condition and
results of operations. To the extent that the Company is successful in
increasing its sales through VARs, those sales will be at discounted rates, and
revenue to the Company for each such sale will be less than if the Company had
licensed the same products to the customer directly.

         In addition to the factors discussed above, among the other factors
that could cause actual results to differ materially are the following: demand
for and market acceptance of Web/Intranet products and services; the Company's
ability to deliver on time, and market acceptance of, new products or upgrades
of existing products; customer order deferrals in anticipation of new products;
the timing of, or delay in, large customer orders; continued availability of
technology and intellectual property license rights; changes in the mix of
distribution channels through which the Company's products are offered;
competitive conditions in the industry; risks associated with global operations;
general economic conditions; and the "Risk Factors" listed from time to time in
reports that the Company files with the U.S. Securities and Exchange Commission,
including but not limited to the Company's Final Prospectus dated May 2, 1996.



                                     - 15 -
<PAGE>   16
--------------------------------------------------------------------------------
PART II.          OTHER INFORMATION
--------------------------------------------------------------------------------



ITEM 1.   LEGAL PROCEEDINGS

         None.

ITEM 2.   CHANGES IN SECURITIES

         Not applicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

         Not applicable.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.

ITEM 5.   OTHER INFORMATION

         Not applicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K


         (a)      The following exhibits are being filed as part of this Report:

                  11.01             Statement of Income (Loss) Per Share

                  27.01             Financial Data Schedule


                                     - 16 -
<PAGE>   17
--------------------------------------------------------------------------------
SIGNATURES
--------------------------------------------------------------------------------


    Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                              EDIFY CORPORATION




Date: October 24, 1996        By:    /s/  Stephanie A. Vinella
                                  ----------------------------
                                   Stephanie A. Vinella
                                   Vice President of Finance and Administration,
                                   Chief Financial Officer and Secretary





                                     - 17 -
<PAGE>   18
--------------------------------------------------------------------------------
EDIFY CORPORATION
FORM 10-Q
EXHIBIT INDEX
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                         PAGE
        EXHIBITS                                                        NUMBER

<C>                                                                       <C>
11.01   Statement of Income (Loss) Per Share.........................     19

27.01   Financial Data Schedule......................................     20
</TABLE>


                                     - 18 -